Sufficiency

What would cause Juneau to
need more hydropower?

The Regulatory Commission of Alaska tariff provisions require a
regulated utility to serve all customers within its service district. Most of the City and Borough of Juneau road
system is in the service area of AEL&P.
However there is no utility service north of Eagle Beach in the northern
section of the CBJ.

Juneau is in hydropower
balance with firm rate customers. That means that those AEL&P customers in
rate classes that are firm and not “interruptible” have current hydropower
generation to meet their demand. Interruptible rate customers such as Hecla
Greens Creek Mine, which is the largest single interruptible customer of AEL&P, is historically taken off AEL&P generated power whenever water
reservoirs are too low to satisfy firm rate payer current and expected
demand. Other interruptible customers
include the Princess Cruise Ship dock and the Federal Building heating system. In
addition, the Coeur Alaska Kensington Mine in the City and Borough of Juneau is
not in the AEL&P service area and is connected to the Juneau electrical
grid. The Coeur Alaska Kensington Mine produces 100% of its power with diesel
generation and through no fault of their own, is the largest emitter of carbon
emissions in the CBJ. Interestingly, the
Coeur Alaska Kensington Mine produces and uses more electrical power than the
City of Skagway and the City of Haines combined[1]. A Coeur Alaska Kensington
Mine interconnection to a hydropower source would materially help meet and
perhaps exceed the CBJ Climate Action Plan goals of community reduction in
green house gas emissions of a 10% reduction by 2017.

[1] Source- Alaska Power & Telephone,
the electrical utility for Skagway and Haines

Table X Juneau’s approved GHG Emission targets

Table 2. Juneau’s approved GHG Emission targets

Source 2011 CBJ Climate Action Plan

Economically, limited or
a lack of adequate hydropower over time could negatively impact Juneau’s
economic growth and could lead to more diesel generation or other more carbon
emitting fuel supply usage in the Capital city when electrical demand outstrips
hydropower electrical supply.

Juneau’s total
electrical sales (firm and interruptible customers) grew 10.83% compared from
November 2011 to November 2012. AEL&P sold 329,250,834 kWh in 2011 and
sold 364,906,469 kWh in 2012 through November of each year.[1] These sales numbers do not
include December sales of either year. Hydropower projects are reliant on
precipitation and rain fall. Lower water years means that hydropower projects
produce less power than in higher water years.

Industrial and commercial growth is not the only
electrical energy demand looming for Juneau. In addition to economic growth that could develop by means of new subdivisions, new commercial ventures, and
new mining activity, there is also economic fuel substitution that occurs when
people switch from high cost fuel sources to lower cost fuel sources. Based
solely on the cost of competitive fuel sources (aside from the impact on GHG), oil
to electric conversions growth is the other primary reason that Juneau will
need more hydropower in the near and long term future. The recent draft
Southeast Integrated Resource Plan (SEIRP) identifies the “Oil to Electric” conversion
phenomenon as a threat to hydropower dependent communities. “In
communities where hydroelectric power is available, rapid conversion from heating
oil to electricity for space heating has been common in recent years due to the
lower cost of hydroelectric electricity for home heating and other uses. While
a benefit to users who convert to electricity, this has had the effect of
reducing the availability of excess hydroelectric generation and increasing the
reliance on diesel generation for communities having limited hydroelectric
capacity”[2].

The price
of oil drives the amount of space heating load converted from oil to electric.[3]

There
are many factors that impact the price of home heating oil that impact why
someone would substitute home heating oil with electrical heat. Many of these factors are international in
nature and are therefore directly related to the world supply and availability
of oil at any given time. However, in the past, diesel fuel used to be an
economical form of electrical generation through diesel generation that was on
par with hydropower. This is no longer the case. The charts below depict how oil prices have
risen over time and demonstrate the correlation between oil imports, diesel
costs and local Juneau home heating fuel costs.

At
2012 diesel fuel prices, the cost per kWh of diesel generated electricity is
over .30 a kilowatt hour. In economic
terms, continued increases in home heating fuel prices will have home and
business owners migrate to lower cost heat sources such as electricity
generated by lower cost hydropower.
Over time, these conversions, combined with economic growth, will
utilize the current hydropower capacity of Juneau’s existing hydroelectric
facilities. At first, capacity and generation used by “interruptible” customers such as Hecla Greens Creek Mine and
Princess Cruise lines will be decreased to ensure that there is enough
electricity to meet growing electrical heating demand for firm ratepayers. It
is not a question of if, but a question of when Juneau will eventually run out
of currently developed hydropower resources. When this happens is predicated on economic development, the price of oil and the price of substitute
fuel sources. Electricity is now, and with higher oil prices will become, a
favored home heating fuel substitute to diesel.

Higher home heating fuel
prices is a double edged sword with two negative consequences. As home heating fuel
prices increase, a tipping point is created somewhere on the price continuum. An economic tipping point is defined as the crisis stage in a process, when a significant change takes place.
In the case of Juneau’s tipping point from oil to electric heat conversions, it
might be a quick rise in the price of home heating fuel to $7.00 or $8.00 a
gallon (or perhaps less) whereby home heating fuel oil is decreased and a large
spike of demand occurs for electricity as smart households mitigate their home
heating costs. Tipping points naturally occur in all markets and economies
where substitution begins slowly and then a massive shift occurs over a
relatively short period of time. For
example, American adoption of cellular phones went from nonexistent to large
scale use when the cost of ownership and cellular local and long distance rates
dropped below what was typically charged for land line telephones.

If Juneau does not
preplan and maintain a growing supply of hydropower and a tipping point occurs,
it could have an expensive impact on Juneau’s economy and household disposable
incomes. Interruptible ratepayers will
be impacted first by a loss of excess hydropower capacity. After the interruptible power capacity is
consumed by the migration from oil to electric conversions, additional generation
will need to be supplemented with diesel generation at high fuel costs. While the addition of diesel generated costs
will be diluted into the hydropower mix and cost of supply, diesel generation
will add small but incremental costs to Juneau ratepayers by a fuel cost
adjustment.

Juneau’s Climate Action
Plan addressed this issue in the executive summary. The community's challenge
is to use its clean energy wisely in order to stretch existing hydroelectric
capacity as far as possible, limiting the need to use back-up diesel
generators. The Juneau Climate Action Plan has the following strategy
and actions:

Under this strategy, the CBJ Climate Action Plan calls for the
following short term strategy:

Develop an Energy Plan for
the community to identify and evaluate the economics of renewable energy
sources (including hydroelectric, biomass, solar, tidal, and wind) that will be
able to meet the community’s needs in the future. The Energy Plan will need to
be flexible enough to respond to changing conditions and will need to examine
the full range of renewable energy potential and relative costs

Consider the feasibility of
other potential hydroelectric sources to meet future needs such as Phase 2 Lake
Dorothy and Sweetheart Lake.

Implement the recommendations
of the Energy Plan to identify and develop local renewable energy sources.

Figure 6. Utility Planning
Conundrum

(Source
AELP 2010 presentation Rural Energy Conference slide)

[1]
Source- Alaska Power & Telephone, the electrical utility for Skagway and
Haines